A man divorced his wife in California in 1999, and soon fell way behind in his alimony and child support payments. He moved to Pennsylvania and remarried in 2006.
Shortly before his remarriage, the man acquired some valuable real estate from his mother. A few days after the wedding, he conveyed the real estate – along with ownership shares in his corporation – into a “tenancy by the entireties” with his new wife. That meant that he no longer owned the property individually, and a creditor couldn’t go after the property without his new wife’s permission.
Meanwhile, the man’s ex-wife filed a lawsuit to collect the overdue support. In 2008, a court awarded the ex-wife a judgment of $550,000.
The ex-wife wanted to collect the money from the husband’s real estate and corporate shares – but she couldn’t, because the new wife was a co-owner.
The case went to a federal appeals court. The result? The court said the husband had committed “fraud” by transferring the property into a tenancy by the entireties in order to avoid his debts to his ex-wife. It ordered the transfer to be undone and the assets returned to his sole ownership, so the wife could collect the judgment from them.
Then, in a unique twist, it ordered the man to pay an additional $550,000 to the ex-wife as punishment for his bad behavior. It said this was permitted by a Pennsylvania law on fraudulent transfers of property.
Not every state allows this type of additional punishment, but every state has laws that make certain transfers illegal if they’re designed to avoid lawful debts. We’d be happy to answer any questions you have about these types of situations.